The cigarettes of the future could be safer, cheaper and less taboo than the smokes of the past. But they also threaten to upend decades of antismoking efforts.

1 “We’re Big Tobacco in disguise.”

When electronic cigarettes made their debut in the U.S. about five years ago, they seemed like a threat to the traditional cigarette industry.

The battery powered devices, which turn nicotine laced liquid into vapor, promised a less harmful and more socially acceptable alternative to combustible paper and tar cigarettes and they were cheaper, not being subject to hefty tobacco taxes.

Cigarettes online and tobacco brands news

Consumer goods maker ITC Ltd said on Friday its net profit in the quarter ended 30 September rose 21.2% from a year earlier to Rs.1,836.42 crore on account of a healthy expansion in margins from cigarettes. The segment accounted for 78.2% of the company’s pre tax profit of Rs.2,661.1 crore during the three month period. ITC’s net revenue from operations during the quarter grew 19.6% to Rs.7,146 crore, driven largely by robust sales of cigarettes, agricultural products and packaged foods, the company said in a statement.

The performance of its hotels and paperboards businesses was a disappointment, according to analysts. The revenue growth was better than expected, according to Anand Shah, an analyst at Elara Capital. “We had expected a revenue growth of around 15%,” he said. The stock gained 2.09% to close at Rs.297.50 on BSE, while the bourse’s benchmark Sensex lost 0.58% in a weak market to close at 18,682.31 points. Net revenue from cigarettes grew 14% to Rs.3,385.15 crore, while revenue from agricultural products jumped 41% to Rs.2,023.88 crore. ITC attributed this impressive growth in revenue to gains in wheat exports.

ITC’s pre tax profit from cigarettes rose 26.1% to Rs.2,080.17 crore from a year ago and 9.5% from the preceding quarter. Operating margin from cigarettes, calculated on net revenue, expanded from 58.24% a year ago and from 57.5% in the previous quarter to 61.4% in the September quarter this was the highest in recent years, according to analysts. The company said cigarette sales by volume were under “severe pressure” because of disproportionate taxes compared with other tobacco products. The launch of new brands of cigarettes less than 65mm long has “met with favourable consumer response”, ITC said in its statement.

Cigarette sales grew 2.4% quarter on quarter by value. ITC’s earnings were “well ahead of expectations”, said Ritwik Rai, a consumer goods analyst at Kotak Securities Ltd. The 14% year on year increase in net revenue from cigarettes as well as the margin expansion in the segment beat Kotak’s estimates, he said in a statement. In line with expectations, the company’s hotels business continued to perform sluggishly revenue from the segment at Rs.216.96 crore was 6.6% lower than the previous quarter, though it was marginally higher than the same period last year. Pre tax profit from the segment at Rs.15.3 crore was 64.77% lower than last year and 41.66% lower than the quarter ended 30 June.

The segment was impacted by “weak economic conditions” in countries from which ITC’s hotels receive guests and by the addition in capacity in key Indian cities, the company said in its statement. The company’s revenue from consumer goods other than cigarettes grew 26.1% to Rs.1,690.8 crore from the year earlier. Sequentially, it was up 14.8%. ITC managed to pare losses in the segment from Rs.38.84 crore in the previous quarter and from Rs.55.9 crore in the corresponding period last year to Rs.30.31 crore.

The surge in revenue from ITC’s non cigarette consumer goods business shows the sector remains unaffected by the slowdown in the economy, said V. Srinivasan, an analyst at Angel Broking Ltd. “Looking at ITC’s results, we are hopeful that other FMCG (fast moving consumer goods) companies are also going to report healthy numbers for the quarter,” he said. The paper and paperboards segment was impacted by a “steep hike” in input prices, particularly that of wood, according to ITC. Net revenue from the segment grew 5.32% to Rs.1,059 crore from the year earlier, while pre tax profit at Rs.282.53 crore was 2.47% lower than last year.